$8B pulled from state investment pool (Florida)

[seafan]

Source: Miami Herald

Florida local governments and school districts -- including Miami-Dade County and Pompano Beach -- pulled $8 billion out of a state-run investment pool, or 30 percent of its assets, after learning the money-market fund contained more than $700 million of defaulted debt.

Orange County, home of Disney World, removed its entire $370 million from the pool on Nov. 16, two days after the head of the agency that manages the state's short-term investments disclosed the defaulted debt in a report to Gov. Charlie Crist.

''Our primary goal is to protect our funds,'' Jim Moye, Orange County's chief deputy comptroller, said from his office in Orlando. The county's School Board withdrew $388 million this week, following other local governments that pulled funds, including Miami-Dade County and Pompano Beach. The withdrawals, made since Nov. 14, were disclosed to Bloomberg News in a response to an open-records request.

The State Board of Administration manages about $42 billion of short-term investments, including the pool, as well as the state's $137 billion pension fund. Almost 6 percent, or $2.4 billion, of its short-term investments consist of asset-backed commercial paper that has defaulted. Those holdings include $425 million in Axon Financial, a structured investment vehicle, or SIV, according to state records.

Read more: http://www.miamiherald.com/news/breaking_news/story/325226.html

---

This is not good.

[seafan]

1. More:

About $19 billion remained in the pool this week after the unprecedented wave of withdrawals, which came after the State Board of Administration reported its holdings of downgraded debt to Crist at a Nov. 14 public meeting of his cabinet in Tallahassee. The disclosures followed a month of inquiries by Bloomberg News to Florida officials. ..... Should the withdrawals continue, Florida's pool may have to consider filing for bankruptcy protection, says John Coffee, a securities law professor at Columbia Law School in New York. ''A bankruptcy could handle these kinds of problems if they feel they'll become insolvent,'' he said.

.....

These public accounts, modeled after private money market funds, are supposed to invest in safe, liquid, short-term debt such as U.S. Treasuries and certificates of deposit from highly rated banks.
The Florida pool, which was the largest of its kind in the United States at $27 billion before the recent spate of withdrawals, has invested $2 billion in SIVs and other subprime-tainted debt, state records show. Connecticut, Maine, Montana and King County, Washington, are among other governments holding similar investments, in smaller quantities.

The Florida pool's $900 million of defaulted asset-backed commercial paper now amounts to almost 5 percent of its holdings.

.....

When local governments withdraw funds from the pool, the state must sell off holdings to raise the cash. Because Florida's pool has been forced to quickly raise billions of dollars to meet withdrawal demands, it won't get top dollar for its asset sales, says Joseph Mason, professor of finance at Drexel University.

Mason, who has studied the history of bank failures, understands the rush by Florida municipalities to pull their money from the pool.
''The first people in the withdrawal line get 100 percent of their money,'' he said. ``The loss is suffered by the people behind them in line. Since nobody wants to be at the end, you get a run on the pool.''

[Robbien]

3. The guys in charge of this fund should be fired and be investigated

What the hell were they doing dealing in highly speculative instruments with taxpayer money.

Edit: And how many other states are in this same situation I wonder. Texas and/or or Florida is probably going to be the next one to be writing off taxpayer funds.

[Javaman]

9. In China they put people to death for doing this kind of shit...

I'm just saying LOL

[Selatius]

14. The problem seems systemic across the banking industry: Terribly weak regulations.

You've got SIVs and hedge funds which are pretty much unregulated. Then you add in people looking for easy-money by giving over-sized mortgages to people who can't possibly afford the future payments because the fund manager is only interested in short-term cashflow and profit-taking, not long-term viability. Sure, they might be able to pay today, but when the low introductory teaser rate ends or interest rates go up, as they have in the early 2000s, you end up with a predictable surge in bankruptcies and foreclosures in a housing market that's still collapsing.

The state government was better off simply raising their funds through taxes and bonds, the old fashioned way. It cuts out the profit-seeking middle manager and shields against idiotic, reckless investment decisions.

[Ian David]

2. "So Glad I voted for Bush! Thank You, Florida!" Yeah. suck it, Florida. n/t

[seafan]

4. 2003: Jeb!'s state pension funds invest in company that privatizes school management

State fund buys school operator

By HELEN HUNTLEY
September 25, 2003

Florida's state pension fund is investing $174-million in a controversial for-profit school management company.
Through one of its money managers, Liberty Partners, the pension fund has agreed to buy out the shareholders of Edison Schools Inc., taking the New York company private.

In effect, the fund that provides for the retirement pensions of Florida teachers and other public employees will own a company that has played a leading role in privatizing school management.
Liberty's buyout was announced in July, but it was not until this week that the Wall Street Journal reported that the pension fund was the source of the money. The deal is expected to close this year.
Edison is the largest private manager of public schools. The company says more than 80,000 students attend the 150 schools it operates in 23 states, including Florida, under management contracts. It reports improving academic performance at its schools.

But Edison and chief executive Chris Whittle have been sharply criticized for both educational and investment results.

Gov. Jeb Bush, a vocal supporter of vouchers and other alternatives to traditional public education, is one of three trustees for the State Board of Administration, which supervises the pension investments. However, Coleman Stipanovich, the board's executive director, said Bush was not aware of the investment until the Journal reported it.

"The trustees don't get down to micromanaging investments," Stipanovich said.

.....

Investors who bought Edison stock lost millions of dollars. The company only recently reported the first quarterly profit in its 10-year history, primarily the result of a property sale. The company's stock, which peaked at $36.75 a share in 2001, fell to as low as 15 cents last year. It closed Wednesday at $1.70. Numerous shareholder lawsuits are pending.

Critics say the poor results counter Edison's premise that it can operate public schools more efficiently and effectively than school boards can.
School employees' unions have been particularly critical of the company, with the American Federation of Teachers publishing its own report disputing Edison's claims of academic achievement.
The Service Employees International Union is asking the Florida Legislature to denounce the Liberty-Edison transaction. The union said it decided to oppose the deal after finding out that the Florida pension fund was the investor behind it.

[jody]

6. Is Neil Bush involved in this scandal? n/t

[rockybelt]

5. Anybody want to play dominos? n/t

[seafan]

7. Janet Rehnquist under GAO investigation for delaying audit of FL's pension fund at Jeb's request

Chief justice's daughter to resign government post

From Jonathan Karl and George Cooper
CNN Washington Bureau
March 5, 2003

WASHINGTON (CNN) -- Janet Rehnquist, daughter of U.S. Chief Justice William Rehnquist, is stepping down as inspector general of the Department of Health and Human Services in the face of allegations of professional misconduct, several sources told CNN on Tuesday.
In a letter to President Bush dated Tuesday, Rehnquist said she was resigning effective June 1 to spend more time with her teenage daughters and pursue other professional opportunities.

.....

The GAO has also been investigating whether Rehnquist delayed an audit of Florida's pension fund at the request of Gov. Jeb Bush's office.

HHS documents show that the audit had been scheduled to begin in April 2002, but Rehnquist, after speaking with the governor's chief of staff, ordered it postponed. The audit did not begin until September 2002, which meant the results would not come out before Bush's re-election in November.
In a letter to the Senate Finance Committee in December, Rehnquist said Governor Bush's office asked for the delay because of a pending change in leadership at the state pension office.

Rehnquist said her "decision to delay the audit was based on the merits and not motivated by political reasons."

[seafan]

16. 'Sources say it will show that Florida will owe a "significant" amount of funds to the fed.'

Not good news, because Jeb wanted to *win* his election in 2002..

And, once again, the people of Florida were hostages of this family's deceit.



From the web site of Senator Bill Nelson, D-FL

March 12, 2003

.....

Sens. Chuck Grassley (R-Iowa) and Max Baucus (D-Mont.) are especially troubled with the delay of a pensions audit in Florida until after Bush was reelected last November.
A congressional aide said the Senate Finance Committee investigation is "about more than one person." ..... The escalating controversy focuses in part on a Florida pensions program that was partly funded by Washington. When states hire personnel to run a federal-state program like Medicaid, the federal government contributes money to state pension funds.

Knowledgeable officials contend Florida took unused funds from the pension fund to help pay for other programs. Concerned that Florida was not repaying the federal government its fair share, the Office of Inspector General launched an audit of the Florida program in April of 2002. But the audit still has not been completed even though such reviews normally take only several months.

Kathleen Shanahan, Gov. Bush's chief of staff, asked Rehnquist to delay the audit, government documents show.
Shanahan informed Rehnquist that the new person in charge of the Florida pension office was retiring and a replacement would not be starting until early summer. Rehnquist subsequently delayed the audit.
Government officials say it is "highly unusual" for a governor's office to request a delay for such a "routine" audit. ..... In their letter, Grassley and Baucus contend that Rehnquist has given them "inaccurate or inconsistent statements." Furthermore, the lawmakers refute Shanahan's assertion, claiming the executive director of the Florida pensions office had started working there several years ago.

The Inspector General audit will be released within the next few weeks. Sources say it will show that Florida will owe a "significant" amount of funds to the federal government.
If such an audit had been released before November, it could have "embarrassed" Bush and could have significantly hampered his reelection campaign, in the minds of some political observers.

Bush easily defeated Bill McBride in November, collecting 56 percent of the vote against McBride's 43 percent. Political experts note that the race was expected to be much closer.
Bush's office did not return a phone call seeking comment. ..... The senators' letter to Rehnquist asks a series of questions on who was involved in Secretary Tommy Thompson's office that caused he audit delay.

.....

[seafan]

8. Florida Retirement System loses $328 million after Enron collapse (Jeb Bush, trustee)

At 11th Hour, He Bought Enron. But Why?

By LESLIE WAYNE
March 3, 2002

THREE months into the Enron scandal, many mysteries remain unsolved. Outside of those slowly unraveling in Houston, one of the biggest concerns the Florida state pension fund, which lost $328 million -- among the largest losses suffered by any Enron shareholder. All fall, as Enron's stock plunged, Alliance Capital and its star money manager, Alfred Harrison, bought more and more Enron shares for the Florida fund.

Exactly why he did so is the subject of much debate here, where newspapers have chronicled growing anger among pensioners and politicians. The Florida attorney general is investigating Mr. Harrison and Alliance, which the state has since fired, and is threatening a lawsuit. State legislators have convened a special committee -- complete with hearings and threats of subpoenas to haul Alliance executives here to explain themselves. For Alliance, one of the nation's largest money-management companies, it is a public humiliation.

.....

Mr. Harrison's purchases were such a wrong-way bet that many people here cannot believe it was just a bad call; they have darker suspicions. One involves Frank Savage, an Enron board member who was an Alliance executive and who, along with Mr. Harrison, is a member of the Alliance board. Did he encourage any of Mr. Harrison's purchases of Enron shares?
This theory, denied by both Alliance and Mr. Savage's lawyer, is under investigation by Robert A. Butterworth, the state's attorney general, and by a United States Senate panel whose members include Bill Nelson, Democrat of Florida.

Another hypothesis involves Gov. Jeb Bush, one of the three trustees of the Florida fund, officially called the Florida Retirement System. In this highly partisan state, where the presidential vote count in 2000 further inflamed political passions, the question is whether Governor Bush, a Republican, was behind the Enron stock purchases. That suggestion has been denied by the fund's executive director and its two other trustees, who said the governor had no role in picking stocks, whether of Enron or of any company.

Governor Bush, who is being criticized for having supported Enron's business interests on the local level and for having invested in an Enron partnership, is in fact among those calling for an investigation of Alliance.

Mr. Harrison declined to be interviewed for this article. A spokesman for Alliance said the company believes that it acted in a reasonable manner but that, like others, it was misled by false information from Enron.

The denials have not, however, dispelled doubts.

.....

[seafan]

10. 2004: FL to invest $1 Billion of employee pension fund in risky venture capital (Biotech)

State to use $1 billion in pension for biotech

By Stephen Pounds, Jeff Ostrowski
April 17, 2004

CORAL GABLES — The state will invest up to $1 billion of its $102 billion employee pension fund in the next three to five years in risky venture capital as it tries to entice bioscience firms to Florida.
In its first installment, the state will give $350 million of its pension money during the next 12 months to four money management firms that will invest it in venture-capital firms, said Coleman Stipanovich, director of the State Board of Administration, which runs Florida's pension fund.

.....

Stipanovich outlined the ambitious investment plan Friday at a summit at the Biltmore Hotel, organized by Enterprise Florida to bring together more than 80 venture capitalists with The Scripps Research Institute President Richard Lerner and Gov. Jeb Bush, to discuss how venture investors can benefit from opening an office in Florida.

Although Stipanovich and Bush whetted the appetite of venture capitalists with the state's plan during the conference, the State Board of Administration got approval from its own board of trustees last year to make the pension fund venture investment. It had legislative authority, spokesman Mike McCauley said.

.....

(What is not mentioned above is that Jeb Bush was one of the three trustees on the State Board of Administration. So, Jeb Bush is whetting AND abetting.)

.....

Although nothing ties the new pension investment directly to biotechnology start-up companies, the message was clear. Scripps, the world-renowned La Jolla, Calif., bioscience center that plans to open a large research campus in northwestern Palm Beach County in 2006, will spin off research to new companies in Florida — and they would be a wonderful place to invest capital.

"I think over the next few years, the dreamers will come," Bush said.

.....

No, Jeb. That will be the federal marshals.

[Joanne98]

11. Where ever there's a Bush, there's a crime!

They better get it ALL out or there won't be anything left!

[progressoid]

12. Jeez Florida, you get some crappy deals sometimes doncha?

Jeb, Hurricanes, Terry Schiavo, Jeb, Katherine Harris, Election 2000, Jeb, no Primary count, Jeb,

[demo dutch]

19. Self delete

[donkeyotay]

13. Looters. nt

[glitch]

15. Yup. And in 20 years they'll do it again. Here if we've recovered, or elsewhere. nt

[Scurrilous]

17. Florida freezes state investment fund

<snip>

"In a move that could disrupt the finances of dozens of cities and counties across the state, Gov. Charlie Crist and other top officials on Thursday froze the assets of a $15 billion investment fund used by local governments.

The move comes in the wake of cities and counties across the state, including Broward, withdrawing millions of dollars they had in the investment fund, which was set up 25 years ago as a way to provide a place for cities and counties to invest money over a short period of time.

In the last two weeks, roughly $10 billion has been withdrawn from the fund -- including $3.5 billion on Thursday morning -- most of it coming in the wake of revelations that state investment managers had money invested in companies that have been rocked by the housing slump and nationwide credit crunch.

The decision by the State Board of Administration -- which is made up of Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum -- means cities and counties with money in the investment fund cannot withdraw their cash until next week at the earliest.

"There comes a time you have to do what you think is right and be guided by what the facts are and what the current events are and try to stop a bad situation from escalating further," Crist said.

The vote to block governments from withdrawing their money from the fund came over the objections of the executive director of the board, who had recommended that the board instead vote to use the massive $140 billion Florida Retirement System as a backstop in case of any losses in the investment fund."

http://www.miamiherald.com/news/breaking_news/story/325513.html

[Sancho]

18. College Faculty got letters this week asking them to join the FL retirement sys.

Instead of encouraging faculty and teachers to chose an optional IRA or annuity, the state is asking for those folks to come back to the state system. They seem to be running out of $'s.

This is a complete reversal from a decade ago.

[demo dutch]

20. OMG, Thank God for Democrat Alex Sink!!! CFO of Florida - stopping an

Enron type disaster waiting to happen!

http://www.miamiherald.com/news/breaking_news/story/325513.html
Quote
--
The vote to block governments from withdrawing their money from the fund came over the objections of the executive director of the board, who had recommended that the board instead vote to use the massive $140 billion Florida Retirement System as a backstop in case of any losses in the investment fund.

But Sink questioned the legality of pledging money intended for retired state employees, school teachers and county employees as a backup for the investment fund, which is known officially as the Local Government Investment Pool. Sink instead called for outside financial managers to evaluate the idea and report back to the board by next Tuesday.
--

Using the The Retirement System as a backstop in case of losses ??!!!

[Sancho]

21. State plugs drain on fund (St Pete Times headline this morning)

Jittery governments' withdrawals threatened to deplete the pool.

By STEVE BOUSQUET, SCOTT BARANCIK and WILL VAN SANT, Times Staff Writers
Published November 30, 2007

ALLAHASSEE - Fearful local governments removed another $3.7-billion Thursday from a troubled state-run investment pool, causing Gov. Charlie Crist and other state leaders to pause the run on deposits by temporarily suspending withdrawals.

"Let's stop the bleeding," Crist said.

Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum voted unanimously to halt withdrawals from the fund - a sort of high-interest money-market account used by Florida cities, counties and school districts - until Tuesday. That's when the State Board of Administration will meet to discuss a longer-term solution.

Local governments have withdrawn a total of $16.6-billion from the fund in November, or more than half its total assets; it closed Thursday with just $14-billion.

http://www.sptimes.com/2007/11/30/State/State_plugs_drain_on_.shtml

[NYC]

22. Local gov'ts. have withdrawn $16.6 billion, leaving $14 billion.

...Local governments have withdrawn a total of $16.6-billion from the fund in November, or more than half its total assets; it closed Thursday with just $14-billion...

Just emphasizing part of your post, while kicking this thread.

[madfloridian]

23. Our CEO Alex Sink got a hurried meeting together.

She is the wife of former gubernatorial candidate Bill McBride.

Here is the article from her website. She sends out frequent updates.

http://myfloridacfo.com:80/PressOffice/Newsletter/

"Fellow Floridian:

As some of you may know, I called for a special meeting of the State Board of Administration (SBA) on Thursday, November 29, 2007. It was essential the Board of Directors of the SBA (Gov. Charlie Crist, Attorney General Bill McCollum and I) meet to discuss the SBA’s Local Government Investment Pool. Local governments and school boards invest some of their funds in this pool, which was seeing an accelerated rate of withdrawals during the past two weeks. If continued, these withdrawals could have left some unlucky investors shouldering the Pool’s riskiest investments, possibly at a significant loss.

The Board discussed immediate actions that would maximize fairness to all current investors. At the meeting, the Board enacted the following plan:

Temporarily suspend withdrawals from the Pool;
Hire an independent financial advisor to work over the weekend and recommend a course of action to the SBA on December 4, 2007; and
Require the SBA to establish an “Investors Committee” among local government investors to develop a fair and orderly withdrawal plan.
Also, I share your concerns about shifting this unknown risk to our state’s pension fund. As your Chief Financial Officer, I take my fiduciary duty to safeguard the pensions of our many retirees very seriously.

The Board expects to implement a withdrawal plan early next week and the SBA is working around the clock to develop recommendations for the next meeting. I will provide another update on this issue next week.

Sincerely,

Alex"

Bless her.

[donkeyotay]

24. Jeb is a terrific trustee. Isn't he raking in big bucks on Tenet's board?

Aren't they connected to a pile of scandals including owing the feds? Then there are all those other medicare fraud scandals in Florida... a lot of smoke for no fire.

BTW, you misspelled "SIV." It's SIEVE, and it stand for Sucker's Investment Evacuation Vehicle for po' 'lil' Executives.